Chunghwa faces new challenges

By Jackie Lin / STAFF REPORTER

The formerly state-controlled Chunghwa Telecom Co (中華電信) has technically become a private entity last week when the government's shareholding in the company dropped below 50 percent. But this does not necessarily mean the nation's biggest telephone services provider will immediately transform from a clumsy dinosaur to a streamlined modern giant, considering the number of internal and external challenges it is facing, analysts said.

The Ministry of Transportation and Communications, the com-pany's biggest shareholder, last week offloaded its 17 percent stake to domestic and overseas investors, thereby achieving the primary goal of privatization.

According to Chunghwa Telecom's share sale prospectus filed with the US Securities and Exchange Commission (SEC), privatization would exempt the company from certain regulations and legislative oversights on its budget, procurements and investments.

"The management and operational flexibility resulting from the elimination of these limitations will enable us to more rapidly and efficiently develop our business and respond to market changes while implementing cost-saving reforms," the document stated.

The outlook appears to be rosy. However, the company is still subject to government interference, although the degree of such intervention might decrease slightly, an analyst said.

"I don't think there will be any immediate impact or changes following the company's privatization, because the Ministry of Transportation and Communications remains the biggest shareholder," said Daniel Hsiao (蕭黎明), associate director at the Taiwan Ratings Corp (中華信評), the local arm of Standard & Poor's.

What's more, lawmakers can still demand that ministry officials be present in the legislature to answer questions regarding Chunghwa Telecom's operations, he said.

Even the telecom carrier itself admits that it remains in the shadow of the government's "significant influence" on certain corporate matters, including the election of directors and supervisors and the approval of dividends.

In addition, under the Telecommunications Act (電信法) and Chunghwa Telecom's articles of incorporation, the ministry has the right to subscribe to two of its preferred shares when the government owns less than 50 percent of its outstanding common shares, granting it the right to veto key issues on the board.

Hsiao said that while the telecom operator will reap the benefits in the long run with more flexible personnel arrangements and purchase decisions, the foremost task it faces now is to brace for upcoming industrial changes.

"No matter whether it's a state-owned or private company, Chunghwa Telecom -- like all its smaller competitors -- will be challenged by data-oriented third-generation (3G) technology and the number-portability policy to be implemented [in October]," he said.

"Number portability" will allow mobile users to switch service providers without changing their telephone numbers, as is currently required. This policy could trigger a wave of rate-slashing competition among the nation's five mobile operators, eroding their profits and reshuffling their market shares, according to a survey released by the Chinese-language weekly Business Today (今周刊).

As of May, Chunghwa Telecom held a monopoly of more than 90 percent of

Taiwan's fixed-line market, or 13.3 million subscribers, and an 80 percent